Many businesses require goods to maintain operations. Some of those goods may be commodities, which are articles of commerce. For example, UPS™ may require millions of gallons of gasoline to continue operating the company's fleet of delivery vans. Gasoline is just one example of a commodity.
Unfortunately, the pricing of commodities, like gasoline, is very volatile. The price of the commodity can vary significantly in a short period of time. This volatility in pricing makes budgeting and paying for the commodities very difficult. Some companies may take a conservative approach and assume the prices will remain at high levels. Unfortunately, this method requires the company to keep great sums of cash on hand to pay for the gas when those funds could be used more effectively in other ventures. Other companies may be more liberal and risk not having the cash available to pay for the purchased commodity. These problems affect the profitability and effectiveness of businesses that rely on commodity purchases to do business.